« Mobile Tuesday Staggers Out of the Gate
Spamidays are here. Don’t be a contributor. »

How Healthy is Your Customer Base? Here are 3 Metrics to Find Out

December 3rd, 2008 by Doug Bright

As the economy turns ever uglier, it might be a good time to take a long hard look at your business to accurately assess the health of your customer base. Businesses with strong healthy customers are in prime position to weather the economic storm and take market share from flailing compeititors. But if you work for a company with a growing share of weak, low value, high cost customers, it might be time to start getting that resume togther.

Here are the three signposts that indicate your customer base is weakening:

  1. The spread between your customer acquisition cost and expected customer spend is narrowing. You’re spending more to get your customers but your customers are not spending any more to offset the cost. This can be a signal that your tried and true methods of acquiring customers are no longer working or that any new programs that you’ve introduced are not performing as they should.  You need to assess what is going wrong fast and fix it.
  2. Customer growth is faster than revenue growth. You’re adding new customers like mad but they may be the wrong type of customers. These customers are likely one time transactional buyers looking for the lowest price. Unless you have a serious cost advantage, you’ll want find out why you’re suddenly attracting bottom feeders.
  3. The retention rate of high spending, loyal customers is weakening. One of the biggest mistakes companies make in measuring the effectiveness in retention programs is to look at the overall churn rate. This introduces an incentive to keep bad customers at the expense of good customers because bad customers make up much more of your base than good customers. What is important is the retention rate of high value customers, not the overall retention rate.
You might notice that all three of these metrics are just different flavors of the same metric: customer lifetime value! In short, if your CLV is shrinking, there’s trouble brewing. Better to indentify the root cause now before it’s too late.
| More

Tags: , , ,

Add Personalized Product Recommendations to Your eCommerce Site

The same powerful personalization technology the big guys use is now available for smaller retailers. How powerful is it? Shoppers who click on Istobe recommendations spend 20-50% more than the average visitor.

This entry was posted on Wednesday, December 3rd, 2008 at 9:05 am and is filed under Customer Lifetime Value (CLV), Customer Retention, Marketing Metrics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Leave a Reply